Much Ado About Everything No 17: The Biggest Threat To Global Trade

Donald Trump's wilful torpedoing of the WTO dispute settlement mechanism is even more dangerous than China/US.

While most of the world, including financial market participants, has (understandably) been focused on China/US trade relations, the Trump Administration has continued — quietly — to pursue its objective of totally undermining the dispute settlement mechanism of the World Trade Organisation (WTO), the world's primary mechanism for the past two decades or so for defusing trade tensions.

As regular readers may recall, this is not the first time I have written about this threat (see, eg, here). But things took a decided turn for the worse last week when US Trade Representative Robert Lighthizer (pictured), a long-time critic of the WTO, blocked an attempt to appoint new judges to fill the four vacancies on the appellate body's panel. The panel therefore remains stuck at just three members (two of whom step down in 2019), the bare minimum required for it to function at all. Furthermore, Mr Lighthizer rejected out of hand every single one of the proposals put forward by twelve WTO members (including the EU, China, Canada, Mexico and South Korea) aimed at addressing legitimate US complaints about how the dispute settlement mechanism functions. AND the US refused point blank to put forward any proposals of its own.

An (in my view, highly probable) escalation in the currently frozen trade dispute between the world's two largest economies stands to be damaging enough for the global economy. But potentially torpedoing the WTO is even more dangerous, as an excellent article by Professor Jennifer A Hillman published in The New York Times on 17 December makes clear.

Rather than writing at length on this myself, I commend Professor Hillman's article as a whole to you and conclude with just one quote from it, as follows:

"That creates the risk of turning every W.T.O. dispute into a mini-trade war. Rather than waiting for the impasse over the judges to be resolved, countries will take trade disputes into their own hands, engaging in retaliation and counter-retaliation that could escalate indefinitely. It also signals a desire by the Trump administration to return to an unsustainable might-makes-right system."

Alastair Newton